They owe $104K+ in HIGH INTEREST DEBT

Hey, everyone, My name is Mike Andes, founder of Augusta Lawn Care. We have over 150 locations around the world. But today, back to being doctor diagnosis. Today we're looking at takeaway junk removal. This junk removal business is losing a lot of money. We're about $104,000 in debt for a business that only made $176,000 last year. I want to show what I saw in the profit and loss statements before I went out and actually took a visit to take away junk removal to try to fix their business. Last year was nuts. So when I look at a profit and loss statement, the first thing I'm always going to look for is what is our total income and what is our bottom line profits. Now, in this case, we made $175,000 in annual revenue last year. The problem is we have a negative $25,000 as our net income. Not good mercy goodness like a negative 15% like this business taken at face value for just. If you just looked at this year, you should close the business down. The reason is because you are so negative, it means that either A, your expenses are extremely high, or two, you have way too much cost to acquire customers. And so as you are growing, you're running, you're burning through cash. Unless this business is growing, like doubling year over year, a negative 15% profit margin will wipe out most small businesses within 12 months. And truly, if you watch the turnaround at the end of this video, you'll see that if they don't turn this thing around within 12 months, there's a really high likelihood they will not be around. So anything more than a negative 5% profit margin, assuming the business owner doesn't have stacks of cash sitting somewhere like underneath their bed, that's going to wipe the business out. So be very, very careful. This, there's massive red flags. And also because I know that the business owner isn't taking a paycheck. So in any home service business, the first thing I want to look at is the labor. So if I look at $175,000 as annual revenue and then I look at the fact that he paid $77,000 in expenses, that passes kind of the general rule of 50%, right? So 50% of 175, that'd be looking at right around, let's just call it $80,000. So we passed that rule of about 50%, which means if more than 50% of my revenue is going out the door to wages, that can usually be a sign of being having inefficient labor or too low of prices. But in this case we're under 80,000, which means that, oh wait, yeah, 80,000, great, it's about 80,000. We're okay at $78,000 in wages. But here's the problem. That 50% rule doesn't apply when the owner operator is in the business out in the field doing a lot of the labor. This number should be way lower. In fact, it should be more like 20 to 25% because the owner in this case is doing most of the work and he's not taking a salary himself. Like his wages are not inside the $78,000. He has actual employees. And so the rule of 50% simply says that less than half of your total revenue should go out the door to wages. That's fine, but if you are producing all of the revenue yourself, that number should be lower. For $78,000 in annual revenue, I would want to see his revenues, sorry, in $78,000 worth of wages and payroll expenses. I would want to see his actual income being 250 to 300,000 to make sense of that number itself. But here's the big red flag. At takeaway junk removal, $40,000 were being spent last year on just advertising. And it happens happens that once I went there, I realized he was spending most of this money on a company called thumbtack. Now the problem with thumbtack is that the lead quality is not great. It also stinks because you're competing with a lot of other contractors that are going to give you like the rock bottom prices. And the thing about junk removal is people are not willing to wait long periods of time into the future. You've got to get immediately on the lead immediately, like fast. And so he was literally sitting in town waiting for thumbtack to give him leads. So I know he's already inefficient just waiting around for thumbtack leads. Secondly, he's paying, look at this, almost 20. What like 23% of revenue is literally being spent on marketing. This is a one time job. Anytime I'm looking at project based companies where you have one time jobs, I want to be spending less than 5% of my revenue on marketing. Which means if I have a $20 project, I want to be able to get that customer for $1.5%. When it comes to recurring jobs where you have more frequent visits like pool service, janitorial, lawn care, etc. I'm willing to spend a little bit more. But I have that customer coming back to me over and over and over again. For takeaway junk removal. These are one time jobs like someone cleaning out their garage or they're moving or they want something hauled away like a deck. That's not any sort of occurrence. I need to get 5% or less of my revenue going out the door to marketing. And sure enough, marketing was the huge expense. And if we just took this out, that $40,000, all of a sudden we'd actually be profitable in the business because 23% of revenue has gone out door to marketing and we have a negative 15% profit margin. So what's the solution for that? We've got to get off of the IV of paying for every single lead. How do you do that? You've got to get a great website that ranks well on Google and has great search engine optimization or SEO. If you do that, when customers look for junk removal in his area, they're going to find him, come to the website and submit an estimate request form without him having to spend money on thumbtack. So in my opinion, a big takeaway for takeaway junk removal was to go get a website. And you can go like home service web design or, or lawn care web design. And you're gonna spend about $500 a month. But for that $500 a month, we're gonna spend $6,000 annually to be able to get that website built. But guess what? Once I've paid the 6,000, like it just keeps printing more leads. And if I can get 50, 60, 70 leads every single month, that's gonna pay for itself very quickly. So going from renting, which is every single lead, you're giving money to a company like Google or Facebook or, or thumbtack and instead ranking high on Google search, It's like owning real estate. So instead of renting every single month, I have to keep paying someone else. I'm going to own the real estate. And yeah, you're like, well, I have to pay a web designer, I have to fix my website, make changes. Kind of like owning a house, you got to fix the air conditioning, you got to fix the light bulb, you got to change the carpet. Occasionally there are improvements. But you're building equity in your brand, your house. And so the thing that I see with takeaway junk removal is he's constantly renting, he's paying for every single lead and he's paying way too much. 23% of revenue going out the door just to get new customers. You will never. Bad situation. You know, the actual waste and disposal fees, the actual real cost of taking the junk to the debris pile and to the dump. Not bad. It's less than 10%. So really, when I went to takeaway, it was like, look, number one, you. You don't need to even have an employee if you're doing 175,000 in annual revenue. My suggestion was stop spending money on thumbtack immediately. Stop spending all this money on these advertising agencies, et cetera. And instead you're like, well, what if I don't grow? What if I only do $150,000 instead of trying to double the business year, I only do 150,000 in annual revenue. Well, guess what? You will now be able to do all of that work yourself without paying money to an employee. And you don't need an employee at this size of business, because you should easily be able to $150,000 in annual revenue by yourself in this industry. A solo operator should be able to make this target in terms of revenue without having employees. And that's what's killing him. The cost of labor and the cost of acquiring every customer. Stop spending money on new leads. Yes, you will have less revenue, but because you have less revenue, you'll be able to do it by yourself without getting more employees. If you want to watch the entire turnaround where I go and check out the business and actually fix the thing, check it out, because there's actually. We do a job where we take away this massive pool in this deck. I think it's massively underpriced.